BP Profit Drops After Further Charge Taken on Spill

BP Chief Executive Officer Robert Dudley said BP is “well on track” for recovery with sales agreements in place for about $14 billion of assets, about half of the target needed to foot the bill for the Gulf of Mexico accident. Photographer: Jason Alden/Bloomberg

Nov. 2 (Bloomberg) -- BP Plc said profit fell 66 percent
after taking a further charge of $7.7 billion related to the
biggest oil spill in U.S. history.

Third-quarter net income dropped to $1.8 billion, or 9.4
cents a share, from $5.3 billion, or 28.2 cents, in the year-earlier period, London-based BP said today in a statement.
Excluding one-time items and inventory changes, profit beat
analyst estimates.

Chief Executive Officer Robert Dudley said BP is “well on
track” for recovery with sales agreements in place for about
$14 billion of assets, about half of the target needed to foot
the bill for the Gulf of Mexico accident. A delay in completing
the relief well required to seal the leak pushed the total
charge BP booked up to $39.9 billion, and the company reiterated
its plan to consider restoring the dividend early next year.

“The underlying results are good, but they’re hit by
another charge,” said Peter Hitchens, an analyst at Panmure
Gordon & Co. in London. “This starts to clear up some of the
uncertainty. It’s going to take some time.”

Beat Estimates

Excluding one-time items and inventory changes, profit was
$5.5 billion. That beat the $4.6 billion mean estimate of 16
estimates in a Bloomberg News survey. The results were boosted
by a lower tax rate compared with a year earlier and improved
earnings from refining.

BP rose 1.8 percent to 431.65 pence in London.

Production slipped to 3.8 million barrels of oil equivalent
a day from 3.9 million a year earlier. Asset disposals will
reduce output by about 100,000 barrels a day in the fourth
quarter, BP said.

Royal Dutch Shell Plc, Europe’s biggest oil company, beat
analyst estimates with a profit of $4.9 billion in the third
quarter. Exxon Mobil Corp., the world’s largest company, posted
its largest profit increase in six years to $7.35 billion, while
Chevron Corp. unexpectedly said profit dropped.

“This strong operating performance shows the determination
of everyone at BP to move the company forward and rebuild
confidence after the terrible events of the last six months,”
Dudley said in the statement.

The spill started with an explosion on the Deepwater
Horizon rig that killed 11 workers. The disaster cost Tony
Hayward his job as CEO and prompted the company to suspend its
dividend. The Gulf of Mexico accounts for about a tenth of BP’s
global production.

Partners Billed

BP said it has billed Anadarko Petroleum Corp. and Mitsui &
Co.’s oil exploration unit, its two partners in the well, $4.3
billion for their share of the costs. Both are withholding
payment in light of the investigations into the accident.

While President Barack Obama lifted the six-month ban on
deepwater drilling in the Gulf Oct. 13, the U.S. still may fine
BP as much as $17.6 billion for the spill and bar the company
from future licenses.

“BP has a lot in the Gulf that has been shut off,” said
Christine Tiscareno, an equity analyst at Standard & Poor’s in
London. “They’ve said they’ll reinstate the dividend, but the
question is by how much.”

Dudley split the exploration and production division into
three, ousting executive director Andy Inglis in the process,
and created an independent safety division. BP said it will
review the payout, which was canceled for the first three
quarters of the year, when it publishes full-year results in
early 2011.

Investment, Debt

The company said capital expenditure may exceed a previous
forecast of $18 billion next year because of cash flows and
investment opportunities.

The company plans to reduce net debt to $10 billion to $15
billion by the end of next year from $26.4 billion.

BP dropped to a 14-year low of 302 pence on June 29 and
bondholders priced in more than a 40 percent chance of default
at the height of the disaster, prompting speculation that the
company would be taken over. The stock has recovered 40 percent
since that low after BP set up a $20 billion compensation fund
with the U.S. government and set aside costs.

Among asset sales, BP has sold operations in Vietnam and
Venezuela to its Russian joint venture partner TNK-BP for $1.8
billion. It has also disposed of fields in the U.S., Canada,
Egypt, Colombia, and Malaysia.

Higher oil and gas prices helped BP. Oil futures averaged
$76.21 a barrel in the quarter, a 12 percent increase from a
year earlier, and natural-gas futures rose 23 percent.

Refining margins have also improved. Profit from turning
crude into fuel rose about 33 percent in the third quarter from
a year earlier, to $4.53 a barrel from $3.41, according to BP’s
Global Indicator Margin.